I’m often asked “Can I Refinance My Student Loans?” The first thing I tell them is that if you are a college student struggling to pay off multiple debts, then refinancing is almost certainly not going to help you. Why? Simply because most student loan programs are based upon need – you must demonstrate an immediate and measurable need for the loan.
Now, there are exceptions. There are federal student loans that provide deferment benefits to students who demonstrate an ability to pay at least part of their college costs. And there are state and local student loans that have income-based repayment plans that allow the borrower to only pay a portion of their educational expenses. However, if you’re already in this situation, then you’ve probably already seen your payments go up significantly.
The answer is “Only if you can afford it.” Refinancing is a great way to lower your payments, – the trick is finding the right lender. If you can no longer afford the minimum payments on your federal loans or your state loans, then the answer is definitely “No.” Refinancing will do nothing for you if you can’t qualify for the new loan. If you can afford your original terms, however, refinancing may be the best solution for you.
The first thing you need to do is review your credit report to see if any of the listed accounts is outdated or incorrect. If so, contact the lender immediately. Many lenders offer special deals if you can prove that the information is inaccurate – it can save you a lot of money. If there are errors on all of your credit reports, then it’s time to start negotiating with your individual lenders.
Your credit score has a lot to do with your borrowing power. Lenders look at your credit score as an indication of your financial ability to pay. If your credit score is poor, you can expect to pay more in interest charges than someone with a higher credit score. You can learn how to check your credit score online. Once you find out what your credit score is, you can get started negotiating with your individual lenders. Explain to them that you were not able to make your payments during the past three months because of economic factors beyond your control, such as layoffs, car troubles, and other unexpected expenses.
The lenders will want to know how much you made during the past year and determine your monthly expenses and monthly income. They will also want to know your employment status and salary level. You will likely need to provide verification of these things, which may require a pay stub, bank statements, paycheck stubs, etc. Keep in mind that some lenders will consider you to be employed even if you’re not, so be sure to supply them with all of the appropriate information.
Once you’ve gone through the lender’s process and determined that you can refinance your student loan, the next step is working out a payment plan. Most students have financial aid or scholarships to help them pay for school, so you don’t have to take out new loans. If you do need to take out additional debt, you can consolidate your existing high interest rate debt into one lower interest rate loan. Or, perhaps you can transfer your other loans, such as a car loan, a home equity loan, or even payday loans, into a single low rate loan. Whatever you choose to do, you should always try to keep your payments as close to the rate of your original loan as possible.
If you think you might qualify for a student loan consolidation or re-finance, talk to a representative from your lending institution or company. They can tell you whether or not you qualify and also give you options for making your payments easier to handle. Remember, it is important that you always be sure to read all of your student loan documents before signing them, including any fine print. Then, make your payments on time and in full, and you’ll be able to get a student loans re-financing or consolidation loan with much better terms than you ever imagined possible!